Animal Spirits Podcast - The Short Squeeze (EP.122)

Episode Date: January 22, 2020

On this week's show we discuss Tesla's wild ride, fixing the US retirement system, why financial literacy doesn't always work, why the Fed isn't to blame for everything in the markets, long-term market return expectations, where are all the start-ups and much more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by our friends at YCharts. Go to YCharts.com. Tell them that Animal Spirits sent you and you'll get 20% off a new subscription. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's wealth management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Rit Holtz Reithold's Wealth Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. I believe it was last week or the week before, Google, Alphabet, whatever entered the trillion dollar club. So now it's Apple, Google, Microsoft, Amazon's just a fellow a little bit below. So then that's the four horsemen. And then coming up behind them, you've got, Alibaba, which is, I think, 600 plus billion, Berkshire Hathaway, five something, 10 cents

four or something. Anyway, question for you, Ben, what do you think is more likely, that Apple gets to $2 trillion, or that the next group gets to $1 trillion, or neither and we're going lower? I don't know. Which round numbers impress you more? Trillion dollar companies are Dow $30,000? I don't know. It is pretty wild.

I am more impressed with the fact that Tesla is now almost a $100 billion company. Yeah. This stock is up. I looked since June 3rd, 202%. It's up 63% since November 21st when Musk rolled out that stupid-looking cyber truck and had the guy throw the rock through the window. Remember when that was the top for Tesla? Was that the bottom?

The bottom is unbelievable. So we got a chart from Y charts that Sean Brown actually put together and I recreated. And he plotted, this is one of those story tells, what is it? I can't talk right now. Picture says a thousand words. Something like that. And it shows Tesla's price and then it shows the percentage of shares outstanding that are sold short. And this thing goes from that time in June, 24% of the float was sold short.

And as the stock rose from there, went all the way back down to less than 15%. But since this thing went public, it basically hasn't gone under double digits in terms of the amount of shares that are sold short. I feel like we said this on one podcast recently that marked market losses for Tesla shorts was like $8 billion. That was a couple of weeks ago. So I'm guessing it's a lot worse now, even though a lot of have covered. It's pretty wild.

It's got to be the most entertaining company. And here's the other crazy one. So I said it's almost $100 billion in market cap. That's bigger than Ford and GM combined. So Ford and GM combined is roughly 86 billion Tesla's 98 billion as of this morning. So this is not a prediction because that would mean that I'm acting on it. So I'm not. Do you really think everyone acts on their predictions?

If that was the case. No, of course not. I'm just saying. That's a good rule of thumb, though. If you're going to make a prediction act on it. Yes. So then this is meaningless. But my meaningless statement is that Apple would hit one trillion before it hits two trillion.

And how about this? You know how Tesla could get to a trillion? I know it's only $100 billion. You know, if you get through a trillion, if you sprinkle a little bit of that magic that you were talking about last week, sprinkle a little magic on Tesla, boom. This run lately has been sort of magical, wouldn't you say? I don't know what to ever think about this company, but it's just one of those that has so much love and hatred and there's really very little middle ground for it. I mean, a while ago, I was going to suggest, why doesn't one of these other companies just buy them? But now that Tesla is worth so much more than these car companies, it wouldn't make any sense. Obviously, there's, debt involved and all this other stuff in the values of these companies in terms of the enterprise values. But the most entertaining stock there is for sure. For sure. So Jonathan Clements wrote a post and it referenced an academic study that looked at financial education

and the impact on, I guess, financial literacy. And it found that it was negligible. It didn't do anything, especially if the education happened more than 20 months earlier. In other words, it's all for not. I don't know if I didn't look at the study. I actually tweeted and I deleted it, not because I thought it was nonsense. I just, I forgot to hit the link in it. But anyway, somebody tweeted to me, like, I wish people would stop sharing this bogus study. It's complete nonsense. Maybe it is. Maybe it isn't. But he said something that I think is interesting. He said, a minority of folks will benefit enormously, meaning financial education, but they're the folks who are naturally inclined to save money, plan for the future,

and so on. In other words, when the financial educators preach, typically the only folks listening, are those inclined to be converted? This, I fear, is what I've spent my entire career doing preaching to the converted. I thought that was pretty powerful and spot on. Yeah, I agree to a point. I feel like the financial education stuff, and I don't really buy a lot of these studies that show financial literacy doesn't work because a lot of those questions are like about how much interest you earn on $100. There's such basic questions. They're also asked to like people that are, I don't know, 40 years old. It's probably, I don't want to say it's too late. but I think when you're talking about financial literacy, we're really talking about getting started

at an early age. It's a fundamental building block in education. I don't know if there's ever been a groundswell for a big, huge project to actually help people change their finances in a meaningful way, not just teach them what compound interest is. That doesn't do anything. So there was this John Reckonfieler at Morningstar has been writing recently about changing the 401k retirement system because he thinks it's broken. And he shared this stat from another article which said that even workers of relatively modest means those earning $30,000 to $50,000 a year are 12 times as likely to save retirement in a tax advantage account if they have access to a plan at work. So give people even with lower incomes access to a retirement plan and they're going to save. And so that's part of it.

It's just like this institutional systematic thing where there just isn't a lot of people who are financially illiterate don't have options to save in an easy way. So Reck and Failure, wanted to put together the plan that was just this big 401K that everyone has and it's not tied to employers. And I actually tend to agree. And I've read about this in the past. Here's my five point plan for making a better retirement plan for everyone. Let me know what you think. So I think we open up the Thrift Savings Plan, which is the government plan. It's run by BlackRock. Every fund in there is an index fund and they cost like two basis points basically. They have like five or six funds and then target date fund. I would open it up to everyone regardless of their

employment status. And if anyone gets a job, you're auto-enrolled and you have the option to opt out and then you have the auto-increase over time. I don't want to put words in your mouth, but I assume this TSP plan lives on the blockchain. I would hope so. My brother is an employee of the federal government and has access to it and has showed me it before. And you can actually look at it online. It's pretty easy. People give the government flack for doing things wrong all the time, but this is one of those places where they actually got it really, really right. Their retirement system for employees is phenomenal. It's low price. It's simple. Is there private equity? No private equity just yet. But they do have this G fund, which is a government bond fund, which will never go down in

price. You're basically guaranteed on this thing. It's like a U.S. Treasury fund that's only open for government employees. Anyway, I've read about this in the past. I think I would love it because the problem is you have your 401k your job and you have to deal with rollovers and moving it around. It would just be nice if we had a plan that would made it easier for people to just keep a retirement plan in one place. And if they jump around at jobs, especially for young people, that way they're not tempted to take it out and spend it or just keep it there and let it languish. And they just have this plan all the time that's available. And if employers still want to offer a plan to offer a match and a better perk for their employees,

that's fine. But if we had a plan that was open for everyone, the government already has one that they could open, I think that would be beneficial. Yeah, I thought that his piece was definitely worth reading. We've spoken about this previously, another topic. How many billions of dollars they call leakage where people will, instead of rolling over their plan to a new company, they'll just take the money out? Yes. It's a huge number. Yeah. And he talked about that was one of the bigger problems. And that's because people change jobs more frequently than they used to. And they don't have a pension plan holding them at a job. Because I got to imagine there's a lot of federal employees who potentially would leave for another job, but they have that pension to fall back on.

and they say, well, if I just work another 10 years, I get this pension, I'm all set for. A lot of people don't have that. Stick it with pension. Our colleague, Blair Duk, and they wrote a really good piece about Social Security. Some numbers in here that I wasn't aware of. Social Security benefits replace about 40% of pre-retirement income on average. Pretty good. That's probably the way most people are going to make it through retirement is Social Security.

Well, here's the however. However, they estimate that 21% of married couples and 44% of single retirees rely on Social Security for over 90% of their income. That kind of dovetails nicely with our stats from a few weeks ago about how we said a lot of people just don't have a lot saved for retirement, right? Yeah, actually, Andrew Wang was speaking to the Washington Post, and he gave a number that I don't know where this came from, but he said if you put $1,000 a month in the hands of one of the 78% of Americans who's living paycheck to paycheck, 70%, that sounds high.

Boy, that sounds like he got that number from a survey. Well, he also said, or the 50% plus who can't afford an unexpected $500 emergency bill, that has been debunked. So I'm just going to guess the 70% is debunked also. But while we're on this, somebody asked us what we think about this, and maybe let's not get into the political ramifications. I just want you, I'm curious to hear your opinion about the reason why he wants the freedom dividend is because he is worried that the fourth industrial revolution, which we're currently in, is going to really replace people. that the robots are going to displace workers to a degree that we've never seen before. Freedom dividend is a wonderful name. I've said this before, but it's kind of funny to me that people think robots are going to take all our jobs when the unemployment rate is as low as it's

been in over 50 years. The unemployment rate is at three and a half percent. People are worried about the robots taking our jobs. Could it happen eventually? Sure. But I think that worry is a stretch. I'm going to put it out there. I think there are certain places that could be displaced for certain jobs and such, but I think, don't you think that's something that's a little further off into the future than people make it out to be? I don't think it's going to be Terminator anytime soon, but I get where he's coming from. I think that people, I mean, obviously we know a lot of people have been left behind, and I think that the 3.5% number might be misleading, not to, like, put on tinfoil hat, but I don't know what this solution is. Oh, your unemployment

rate, truther. Wow. I did not know that. Guilty is charged. Okay, very interesting. You don't believe in full employment. All right. What about inflation? Is there anything else that any other conspiracy theories you want to get off your chest? I'm a shadow inflationist. Okay. Well, here's some good news for people on the lower end of the spectrum. This is from New York Times. For the last decade, the federal minimum wage has been unchanged at $7.25 an hour, but dozens of states and localities have increased their own minimum wage hikes. And as a result, the effective U.S. minimum wage is closer to $12 an hour, most likely the highest in U.S. history. And they're showing that wages at the bottom,

end of people, so they've broken down to the lowest, middle, and highest class earners have been growing the highest recently. And that's been the case over the last few years, actually, that people on the low end of the wage scale have been growing, and that because we've had these minimum wage increases. And don't you think this is me putting on my poli-sci hat here? Because things are so dysfunctional in Washington, D.C., and nothing ever seems to get done, that it's going to just be that we get most of the action at the state level. We've had places like Michigan just recently voted to have pot be legal in the state. That hasn't happened to federally yet, and it happened to a lot of other states. And we've had these other things that are enacted

at the state level. So anything, that's where things are happening now. And maybe people spend too much time worrying about who the president is. And it's more important to be worried about who your local representatives are. I don't know anything. And I mean anything about state versus federal government politics. But I'll say that makes sense to me. And while we're on the topic of pot, as you call it, I want to thank Blue Harvest. They set me like a giant box of CBD stuff. Sorry, did I sound like a gnarc calling it pot? I don't know what to use it for exactly, but I appreciate the gesture.

Okay. But you sent me a picture of it. It looked like you made a really big run to family video. So, okay, David Brooks took, I guess, this similar data, David Brooks from The York Times and wrote a piece of like, well, if CEOs have so much control and the top is making all this money, how come wages are increasing at the bottom end, the fastest? And he got, boy, did he get destroyed, rightly so. Ratiode?

That was one of the biggest BS pieces of arguments I've seen in quite some time. I mean, talk about being disingenuous. Wow. The thing he missed, obviously, was that it's because minimum wage has increased. It's not CEOs increasing the pay. It's minimum wage. People in the bottom, desal have it so great. And those poor CEOs.

Ah, okay. Whoops. So he got canceled immediately. How many times does that guy been canceled? Total malarkey. Okay. So there was a few, the Fed is causing a bubble and everything pieces this week. One was from the F.T. I think there was there one in Bloomberg, too. And then Paul Tudor Jones mentioned it this morning. There's also one in the Western Journal. Okay. So Neil Cashkari, who is the Federal Reserve head of Minnesota, I believe, the Minnesota Fed Bank, he had a pretty good response to this. He said basically six to nine months ago, and this is for people who say the Fed is manipulating everything. And his point is that maybe they don't manipulate. feel at everything, but some of the worries have been overblown. So he talked about six to nine months

ago, everyone was talking about this impending recession because of the yield curve inversion. And he actually said the Fed was largely responsible for that. And because they control the front end, and now that we've lowered the front end rate, the yield curve has come unwound, the inversion has come unwound. And what are the QE conspiracy theorists saying now, of which you might be one because you don't believe the unemployment rate? But anyway, this was an interesting thing from him in terms of the, a lot of times we're dampened. We're trying to put the fire out in terms of Fed manipulators. But this is one case where he's saying, yes, actually, the Fed does manipulate the lower end of the curve. And the inversion was our fault. And people who

worried about the recession because of it were wrong because this was just us controlling rates. It is interesting that the FT went full bubble, bubble. It was an opinion piece. All right, fair enough. Okay. So in the Wall Street Journal, here's a quote. Many market participants believe that growth in the Fed balance sheet is supportive of higher valuations and risk assets, Mr. Kaplan told reporters, and he said, I'm sympathetic to that concern. I think it's wise to acknowledge it and be cognizant of that concern as we think about our next actions. Let me ask you a question. Do you think that any individual looks at the Fed balance sheet and says, oh, they're providing liquidity or whatever, therefore I'm going to be

aggressive because it's sort of interesting. The common narrative is they're manipulating things higher. I don't really understand, but... The common refrain from Fed haters is after the fact has been, well, of course stock markets are up 500% since the March lows. The Fed has printed money and then you ask, well, have you been invested? Well, no. Of course I haven't. So it's like the same people who look at it in hindsight and realize, oh, of course this was going to happen, but they weren't invested. I'm obviously sympathetic to the dunking. Don't get me wrong. I just want to say, like, I don't really know anything about, I don't even know what quantitative using is. There, I said it. I don't want to be, I guess, what am I trying to say? Here's what Cashari says. He said,

someone explain how swapping one short-term risk-free instrument reserves for another short-term risk-free instrument, T-bills, leads to equity repricing. I don't see it. And that's the thing that people don't realize is that this is just a lot of movement of these securities behind the scenes. It's not like they're handing people cash in the streets. When you call it money printing, it's not what it is. And reading someone like Cullen Roche over the years at Pregmatic Capitalism has been very helpful to me to understand this stuff and how it's more of like a banking entry than it really is them printing money and having all this money hit the system. It's not the same thing because for every asset there is a liability and these things sort of cancel each other

out. I guess what I'm trying to say is I feel like I've read enough of Cullen's stuff. At this point, I understand it as much as I'm ever going to. It sounds too complicated. It still is very confusing. I totally agree there. And so can we? we thank the Fed for having zero volatility in the stock market? Because the Wall Street Journal also showed that the S&P 500 hasn't moved one percent or more in either direction since mid-October, six longest streak since the end of 1969, third longest since 95, according to Dow Jones' data. So there hasn't been a 1% move. And I looked, there hasn't been a 2% up or down move since August. I don't understand what the Fed has to do with this. I know. I was joking. This is how

bull markets work. And we've both written a lot about this how volatility clusters and in bull markets, you just take these small little steps up. It's just slowly but surely. And you don't get these big up days into bull market. That's just how it works. Yeah, I feel like I've written about this like several times over the last few years that this is a defining characteristic of most bull markets aside from like 98 and 99 towards the top. You don't typically get buying panics. These bull markets can be, I don't want to say frustrating because they're a blessing, I guess, while they last, but they can really sort of grind you down if you're pessimistic. So I've been looking for signs of euphoria because we keep saying that this is the bull market

that everyone just hates. And the New York Post had this story that said, average folks, optimistic on economy, a stock market goes gangbusters. And I'm going, all right, finally, we see some euphoria. And listen to their, this is the survey. This is from a lion's life, which conducts a quarterly market perception study every week. And they found that concerns about a recession or impending crash are at their lowest level since 2018. Survey? Yes. In the fourth quarter, 43% of Americans were worried about a recession was right around

the corner, down from 50% in the third quarter and 44% in 2018. 39% said they were worried about a market crash on the horizon, down from 48% in the third quarter. Doesn't that still seem high to you in terms of people being euphoric? 43% of people think a recession is right around the corner, and 40% are worried of market crash is going to happen fairly shortly? I got an anecdote. Over the weekend, family member was who I don't talk about the market with because I don't like doing that.

Those can be tough conversations. Well, he's like, what do you think? And I was like, I learned a long time ago not to just casually talk about what I think about the market because I'm going to look like an idiot. I used to do that. I used to try to do like the strategist lines. It's just, yeah. So anyway, so I was like, by all means, I'll listen to you. What's up?

What's on your mind? So he's like, man, I feel like an idiot. I sold AMD like $15 ago. but I've still got some Apple and my friend has Apple and whatever, whatever. And it was just like, there wasn't anything that he said that was like, oh boy, but he was talking about stocks which doesn't happen. So don't say I didn't warn you. That's your cocktail party indicator. Okay. Don't say I didn't warn you. So yesterday you said you were looking at some of your old post and you wrote in 2015 about expecting lower returns in the market. Yeah. So what happened

was this. Let me give you a little behind the scenes, Ben. Peel the curtain back a little bit. So I sat down to write this post and I titled it. By the way, do you, I don't really know if I start with the title usually and then I write, I don't know. Anyhow, in this case, I started with the title. The title was preparing for lower returns. And then I was like, wait a minute. I feel like I've been here before. So I Googled Michael Batnik prepared for low returns.

And I wrote this exact same piece in November 2015. And since I wrote that post, the market is up 72%. Wow. So did you just do a copy and paste? Change the date? Yeah. Well, that post sucked. I'm actually ready to get a decent one, I think. But I will say I was just early. Okay. So the reason I ask, because Christine Benz and Morningstar compiled all these long-term

forecasts for stocks and bonds from a bunch of different sources. So I'm going to go through them really quick. Black Rock says nominal returns, meaning not inflation adjusted of 6.1% for large-cap stocks in the next decade, 6.5 for European stocks and 7.5 for emerging market stocks and 1.7% for bonds. GMO, always the turd in the punch bowl here, negative 4.4% real, which is inflation adjusted for U.S. large caps over the next seven years, negative 2.1% real for U.S. bonds, which I guess would have to mean 4% inflation, 4.5% real for emerging markets and negative 0.2 for emerging market bonds. J.P. Morgan is 5.6% for U.S. equities. That's pretty similar to something. Here's Morningstar. Actually has another one.

That's pretty low. 1.7% 10-year nominal for U.S. stocks and 2.1 for bonds. Bonds is pretty easy. That's surprising on the stocks. is low. Research affiliates is 0.3 real returns for U.S. large caps, negative 0.1 for the bond index. And Vanguard is three and a half to five and a half for the next decade for U.S. stocks. They said six and a half to eight and a half for non-U.S. stocks. And two to three for U.S. fixed income. So which camp are you in? Isn't it funny that the people who have been the most wrong have the most bearish outlook on stocks? What is the correlation there? Well, all right, I'll tell you, I'm in Vanguard's camp on this one. I think

three and a half to five and a half percent nominal for U.S. equities seems reasonable. Yeah, it does seem reasonable and there's no way it happens. I feel like you get either one extreme or the other, things that we're in the depths of a bare market and we get really horrible 10-year returns or things keep chugging along and people are really surprised and they're not that bad. I mean, the situation where we kind of go nowhere, it really depends on when you look in 10 years. I feel like these return assumptions do make a lot of sense. Is it ever going to happen that way? I highly doubt it. Is that fair to say?

Well, I don't know. I think I'll take the other side because we're talking about 10-year returns. You could have said this 10 years ago, though, looking at the valuation levels. Yeah, of course you could have. But it's different this time. This time we meet it. But hold on, my point is you get- How come no one says it's the same this time?

It's the same. This time is the same. We get crazy moves on an annual basis. You don't really see giant outliers on a 10-year basis. They fall within some sort of range. All right. say false to that and I will prove it to you with the data next week. I have it on my computer right now. Sorry, I already did it. Okay, what's the range of 10-year outcomes? Hold on. Let me open my

spreadsheet. It's still relatively big, is it not? All right, Ben, check your slack. Okay. So this is S&P 500. I use rolling 11-year periods, forgive me. I don't know why. I did 11 instead of 10 because I was including 2009, but it doesn't really matter. So these are nominal returns. These are nominal 11 year rolling, so we've got a low of just above 2% in the Great Depression and a high of, call it 15% in the 90s. So it's fairly tight. That's still a pretty good range, don't you think? And there aren't too many times here where it's between 4 and 6%. Wouldn't you say that's fair? I'd say 25% of the time. 10% of the time. I don't know. We'll put this in the show notes, but Okay, I'll give you half credit for this.

Thank you. I'll take it. All right. So a couple weeks ago, I had misplaced my wallet. And it's always kind of a pain when you didn't have it on me for like four days and I finally got it back. Or how about when your podcast co-host takes your wallet? Yes. We have the same wallet because Michael liked mine so much that he bought it.

And every time we were in the same hotel room, he grabs both wallets in his pocket. I think it only happened once. And I get in the cap and I feel my pockets and I think I lost my wallet. But I realized I actually made it much easier than I thought it would because most of the places I go to for lunch, I have my credit card just saved or I order online or through an app. And it was actually easier to make it through than I thought. But shouldn't this be the case where we just don't have credit cards in the future, where it's on your phone or it's stored in the cloud somewhere or, and this sounds like this is what Amazon's doing. You pulled a Peter Schiff. You lost your wallet. Yes. I didn't lose my Bitcoin wallet yet.

No one stole it. So they talk about how Amazon wants to use paying with a wave of a hand where they scan your hand and then you go to a store and you either scan it or you wave it in front of something and that is your credit card. But don't you think that's the future we're hopefully going for of just scan your eyeball or your fingerprint or whatever it is and not have to hold on to a credit card or just use your phone? Wouldn't that make life a lot easier? Every time you lose your wallet it and you have to cut up your cards and call an order a new one. What's the point of having them the actual cards? I think it's just kind of useless. So I like this idea by Amazon, using your hand to purchase something and not even having to ever get out your card. Agreed. Let's do it.

So Black Rock's Larry Fink wrote a CEO letter last week about how they are making a big push into ESG. He called it a fundamental reshaping of finance. I forgot to read that. I meant to. to get to it. Okay. It's a nice sentiment. Do you think that this is him just trying to be woke? Yes. Is this a PR thing or is this something there? Because they talk about how. Well, I didn't read it. They talk about how they'll be looking at different ways to make ESG and sustainability more integral in their portfolio construction and risk management. And I think this was just a wait for them to get ahead of the people worried about the concentration and the industry and them having so much power and with $7 trillion or whatever. It is. I just don't know how much of this is a PR stunt versus how much this is them actually caring about it. I couldn't tell you. I would be inclined to be a little bit skeptical here.

That's just my first thought. Okay, 10 most trusted brands in America, according to a new poll by Morning Consult. This one was kind of odd. Number one was a U.S. Post Office, which number two is Amazon, three is Google. They had UPS on here, Cheerios, M&Ms, the Weather Channel, Chick-fil-A and PayPal. Garbage. Nobody trusts the Weather Channel. You know I didn't say post office? Really? As the number one? I don't know. I don't know. I have a love-hate relationship with Cheerios as a brand because my kids love Cheerios. I don't like the smell of Cheerios.

I hate them with a passion, not eating them, but just they're everywhere in my house, in my car. The kids drop them everywhere. That's why I hate them because they are just everywhere. I'm pretty much all in on Honey Nut Cheerios, but to your... point, I've got Cheerios all underneath the car seats and stuff. Ugh, they're everywhere. Yes, that's why I don't like them. Galloway did a post on Casper Mattress, and he said, CNBC leads us to believe their startups everywhere.

There aren't. The greatest engine of job, growth, small business is on life support. Half of as many firms are founded today as during the Carter administration, even the most promising struggle to find the scraps ignored by the great white sharks of big tech. David Peril had a post that supports this view, and he shared. a chart from the Kauffman Foundation charting the startup decline. So it showed number of new firms, again, going back to 1978, which has, it's stagnated. It hasn't gone anywhere.

It hasn't gotten anywhere in terms of a number of new firms per year. And as a percentage of the total, it's in free fall. So it's gone from around 15% to under 9%. So it is interesting that we think of like the startup world as being in a bubble, but really it's not. Can I offer some pushback on this one. I don't necessarily agree with this data. Okay. It's ironic that in Galloway's own post, he talked about how there are 175 online mattress retailers. So he's talking about how there's a dearth of startups, but there's 175 online mattress retailers. Don't you think that a lot of the people that are in business for themselves these days, they're not forming an actual business like it was in the past? Like, how do you, the people who are YouTubers and TikTok influencers,

and these people are creating their own brands and technically businesses around themselves. Are they really a new firm? So are you a new firm data truther? Yes, I am, kind of, because people who start blogs, they're not creating a new firm and they're not hiring people, and maybe that's the point that a lot of the new businesses these days are kind of just for a business of one, I guess. Maybe that's the problem that we're not seeing these big businesses being made. But I think that's part of the reason is because software makes it easier to have small.

businesses. So a place like Instagram, how many people were at Instagram when it got bought by Facebook wasn't like 9? Yeah, something ridiculous like that. I think that's just the way the world is with technology these days. So I think maybe there's more opportunities these days, but it's just easier to start a business where you don't have to have a huge employee base like you did in the past because the overhead costs are much easier now. I can see both sides of this, but I think these numbers are a little. All right, fine. Let's see that the numbers aren't 100% accurate, which whatever. I think that. The point is still taken, though, that giant tech is just crushing everything.

Yes, and they have the resources now to just, if there is a nice startup that comes into play, they buy it before it gets too big, and then they just integrate it with their company, and that they don't have to innovate from within. They can just innovate by buying new companies. So Spencer Dinwiddie of the Nets. Great name. Very great name. Just the dumbest idea for a contract.

I know he's trying to be like a blockchain guy. But here's the thing. So he has a $34 million three-year contract and he tried to tokenize it somehow because he's into blockchain. And someone obviously sold him on this. And the NBA wouldn't let him do this. So what he did is he basically, it's tokenized it on the blockchain, whatever that means. But all he did was take an upfront payment of $13.5 million of his three-year contract. And people who buy in as investors are receiving 4.95% interest. And he basically issued, shoot a bond on himself. So more or less, he took out an upfront loan on his own salary, which just makes zero sense. I mean, I get things in the mail offering me lower interest rates

than 4.95%. I'm sure he can get a mortgage for much lower than that. I don't see the point of doing this except to show I'm on the blockchain guy. Quick tangent. I got a dollar in the mail from Pew Research. They wanted me to do a survey. Haven't done it yet, but fairly effective. That's why you get people saying Iran is in the middle of the Pacific Ocean because they only pay you a dollar. But back to the Spencer Dinwiddie thing. I think the intention here is that he's going to tokenize, get his money up front. A dollar today is worth of money than a dollar tomorrow. And he's going to take that money and make venture investments. Okay. Yeah. And he's paying 5%. And he's also going to take eight people to have a all-star game with him. So he's paying 5%. He knows he's going to get a 35%

IRR on his venture money. So it's just a natural arbitrage. So back in the 90s, every NBA player wanted to be a rapper and every rapper wanted to be an NBA player. And now every NBA player wants to be a venture capitalist and every venture capitalist wants to be a stoic philosopher from 300 BC. And so that's what's happened here is just that all these NBA players want to be venture capitalists. And he just wanted to put blockchain on this to show what a visionary he is. I give the guy A for effort, I guess, for trying to do something. It just, it seems like way more trouble than it's worth. There's no reason to have a blockchain on this. He could have just taken out a loan from Marcus

for a much cheaper interest rate, probably, and then invested in his venture capital, whatever that he's, I don't know. I just... Are you allergic to yawns? Isn't everyone? Apparently not. Rob and I joke about this that you're copying me because yawns are contagious. Everyone knows that. But I Google this, and I just went to web them days. I didn't do much digging, but they really don't know why. But they said that researchers have seen that yawning may not be as contagious to people with autism or schizophrenia. More research is being done to determine the cause of this. So they really don't know. They think it might be related to empathy, but they don't know. So here's one that I figured out, and you might be able to find this

with your new son. I always tried to Google with my kids. When do kids become ticklish? because my kids are so ticklish and love to be tickled. And I don't think it happens until like six months of age. Your newborn son is, what, four months old? So Logan is, he was born in August, I don't know, he's about four and between four and five months. So when I rub my fingers up his belly to his neck, he laughs, but I don't know that that's necessarily being ticklish because like if I were to tickle his ribs, for instance, I don't

think he would laugh. Yeah, that's just an odd thing to me that you develop the sense of being tickled. All right, I don't know how to transition away from that, but let's just talk about this tweet that we saw. Great graphic. Don't know who put this together, but I think it's a great reminder of the burning need for creativity and differentiation. I don't know what the hashtag marketing hashtag design was all about, but it's a picture of four quadrants of different movie posters, and they all look exactly alike. It's the close in face with the eye. It's the person staring between spread legs.

It's the guy and the girl back to back. Did you read the original thread? I thought it was so ingenious. the person who did this, that, and obviously it doesn't say anything about the actual movies themselves. I loved it. What do you mean? Just the fact that this person, they must have spent hours and hours of their time going through and finding movie covers that looked similar to one another. Well, I think aesthetically, this is very pleasing, but I think the takeaway is total bullshit because it's easy to be like, oh, Disney's dominating. It's all cartoon, Marvel, whatever.

but I feel like 2019 was such a great year for differentiation and for creative, different type of movies. So I guess technically the Joker is like a comic book movie, but that was so different. 1917, maybe a little bit manufactured, but like knives out, completely unique. I just saw Parasite over the weekend, completely unique. So I don't buy, I think this is so lazy and I don't buy it at all, this idea that we have nothing going on in Hollywood. Plus, we're in the golden age of television where a lot of the movie stars are

going into TV now. And if anything, a lot of those shows are even more creative. I don't buy this logic at all. It sort of bugged me a little bit. And let me just say, so this weekend, I've been dying to see Parasite because it's been so hyped by everyone, especially the critics. Did you go to the theater to see it or has already on streaming? Well, okay, here's what I want to talk about. It's not in any theaters nearby. And I saw that it came to Amazon Prime video, but it's $15. And I was like, oh, man, like, oh, I guess I'll just wait for it to whatever, be free somewhere. For like three weeks, do you have to buy it before you can stream it?

Okay, so here's a deal. I thought to myself, hey, wait a minute. I'm dying to see this movie. I go to the movies, I don't know, once every other week and I spend $12 or whatever it cost and I don't think twice about it. Why wouldn't I spend an extra $3, $3 to watch a movie that I'm dying to see for the comfort of my own home? It doesn't make sense.

So anyway, I did buy it. And I don't know that I liked it as much as the critics do, but it was good. it was like really good. I understand why they liked it so much. It was completely unique. It was hard to even put in a genre. It's sort of dark comedy thriller. I don't even know. Class warfare, all that sort of stuff. It was very good, very, very good. And subtitles, correct? It's a South Korean movie? Subtitles. Okay. You get used to it. No, I don't mind that. Just a quick listener comment. I would temper the advice you gave your emailer about taking a pause in their 401k since they have over a million dollars. If their 401k plan provides matching

contributions. I would advise them to continue to make deferral contributions so they maximize the match. Always want to take free money. Cannot agree more. That was definitely an oversight of an hour part. That's true. A hundred percent return. That's pretty easy. Okay. I like this one. My parents are pushing me to buy a home in Seattle, a fairly expensing housing market. They argue that the interest tax deduction, rent savings, potential home value appreciation make it make sense. After linking all the numbers of cost versus buying versus renting, it seems to make more sense for me to keep renting. People around me keep saying that buying a house is a great investment because prices in Seattle seem to keep going up. I disagree and see

a home purchase as a leveraged purchase with a lot of potential downside and upside. I don't feel like I'm in the situation where I can or want to take this risk. Is this the right way to think about things? I love it. I think this person has their head firmly screwed onto their shoulders. Yes, because a lot of people do push you into this. Buying a home is the American dream. And it doesn't have to be. If you're just a civilian and you're not really into market history or whatever, and you live in Seattle, and you look at charts, and you're not looking at charts, you're just listening to people around you, and you know anecdotally that housing prices are going up and up and up and up, especially if you're a parent, you want that for your child. So I totally

get why he's being steered into the decision to buy. But buying is super expensive. It's an enormous amount of leverage. I actually watched a video, Brody from Unison sent this over. He was talking with Terence O'Dine. Is that his name, Terence O'Dine? Yeah. About some of the myths around housing. And I think he nailed it. If an advisor So it's like, hey, you know what? Put down $100 and you can get a thousand dollars worth of stocks. Like, who would do that? So I think people completely overestimate the benefits of buying. They underestimate the cost involved. The time constraint, too, owning a home is not easy. There's a lot of upkeep involved. So if you can say to yourself, I don't mind if I miss out

on a little of this appreciation in this hot home buying market, I'm going to overlook the peer pressure. You're in a better place than most because a lot of people can't stand up to that peer pressure. So if you've decided for you personally, it's not worth it. Don't do it just Because everyone else thinks you have to. You don't. Yeah. So I'm not saying homeownership is a bad thing by any means. But for this specific example, when the alternative seems very reasonable, do that. All right. The 6040 portfolio is often presented as a prudence approach for the average investor. But the average drawdown duration is not that long. For investors under 50 or even 60, is there any good argument for not being 100% all in on equities? Shouldn't a prudent investor move to bonds no sooner than five to 10 years before retirement? I occasionally hear people in the 30s. Okay. All right, I would say this. Yes, if you are a robot and you have no emotions, then by all means, 100% stocks. On a spreadsheet, being all in stocks when you're young makes the most sense in the world. On a spreadsheet. In the real world, not always.

Yeah, but listen, let's say that you're about to retire and however much money you have, make up a number. Let's say you have a million dollars and you're 10 years away from retirement. And all of a sudden, your million dollars is now $500,000. And now it's $450,000. I mean, at some point, the market has a really good way of finding your maximum point of pain to press the button. So listen, if you've been investing for 40 years and in the dot-com bubble you didn't sell and in the GFC you didn't sell, okay, fine. You have passed the gauntlet. You have proven to yourself that you can withstand. But even still, that doesn't prove anything

because now you're close to retirement. Anyway, the point being, be careful. I do not subscribe to this. I think it is the right situation for some people, especially when you're young and just starting out. If you don't have a big balance there, it doesn't hurt as much. It's when you get into your later 30s and early 40s and maybe 50s where you actually have some money in their account, that's when it can be more painful when even if the percentage drawdown is not as great as it was during the crisis, if you have more money, that dollar drawdown is going to be way bigger. So it's harder to see a 20% drawdown with a $500,000 portfolio versus a 50% drawdown with a $50,000 portfolio just because it's more money that you see evaporating for a short

period of time. So, yeah, it all depends on how you can handle this stuff, but it's not as easy as it sounds. All right. Is Twitter an edge? What piece of the pie of the financial community use Twitter? I can't imagine it being high considering the percentage of population uses Twitter as a whole is pretty low. What do you think? Can Twitter be an edge in your investing? Is it a hashtag edge? No, Twitter is absolutely not an edge. I used to kid myself, and I think a lot people did that, oh, I'm on Twitter for sentiment. It allows me to, no, it doesn't. No, it does not. It's an edge. If anything, if anything, it's a negative edge. Because what happens is like any sort of outlet, there's confirmation bias all over the place. You follow who you want. You follow views that

you agree with. So, no, it's not an edge. Stop kidding yourself. I think it's an edge in gathering information from good sources. That's the only way I use it is that's where I get all my news from pretty much. and that's where I follow a lot of good research that I might have otherwise missed. That's how I use Twitter pretty much. Caffeat. What I was talking about specifically is a trading edge. Right. I think that was the subtext behind this.

Now, okay, put that to the side. Are you saying, does Twitter provide alpha? Yes. No. No. No. However, Twitter is where you and I met. It's where a lot of the people that I consider dear friends I've met, it's done an extraordinary

amount of benefits. You just made it sound like we met on Tinder or something. Well, it's been tremendous for our career. So I would say Twitter is a. an amazing thing, but it is not a trading edge. All right, let's hold off on the rest of the questions because we're getting kind of long. Ben, what recommendations do you got? All right.

Here's a older independent movie that we rewatched this week. I think it's like 2003. It's called Station Agent. And it's an independent movie that never would be made today. It's just a really kind of heartwarming story about friendship. And Peter Dinklage is in it who plays Tyrion Lannister on Game of Thrones, who was one of my favorite TV characters of the last decade or so. It's also got a small part for Michelle Williams and Patricia Clarkson is in it.

and Bobby Kennavale is in it, and it's on one of the movie channels. I taped it there. If you can find it, it's just a really good sort of feel-good movie. It's like 90 minutes, independent movie. Again, never would be made today. Station Agent. It's about a guy who inherits a train station, and he becomes friends with people in town, and that's kind of the whole movie. You're right. You're right. That would never be made today because of all the copycats in Hollywood. Yeah. Three episodes in, and I'm all in on the outsider on HBO. It's a Stephen King story. I guess it was a book before. Jason Bateman. was in it, a bunch of other actors or actresses you've probably heard up before.

I don't know where it's going because I never read the book, but I am totally in. I think it's fantastic. One of the better books I've read in a while, actually, business-wise, was called Wild Company. And it's by the two people who, a husband and wife team who founded Banana Republic in the late 70s, early 80s. I never realized that when Banana Republic was formed, the reason it's called that is because it was like a safari clothing store. Can I give you a quick plug? Sure. Because the listener might be wondering, Ben, where do you find you? the time. You did a great blog post about how to write a book in your spare time, not to brag.

And I think that you have alpha because you're a night owl. That is a huge edge. I'm sleeping by 10 o'clock. Yeah, I don't go to bed to 11 or 12 most nights, probably. But when I stay up late, doesn't your brain shut down? Like, you could still be productive at that hour? I can. In the morning, I do not function, which is weird that I don't drink coffee. So I read that one. It's a pretty quick read. I think I read it in three or four nights. And I never realized the backstory. It's like a good entrepreneur story about how they started from nothing and started been in a republic. And maybe it's one of these ones where we talk about how there's no startups anymore. They started it with like a $250 in rent store in San Francisco. And it just seems a lot

maybe easier to start a store like that in the 1970s than it is now. So maybe you're right on that one. Yeah, that's all I got for today. Okay. Did I tell you about Mission Impossible? What about it? Okay. I wasn't sure if we spoke about this. So on Prime video for free, I watched Mission Impossible Fallout. It was the last one, 2018. So that movie was, if six undergone... I love those movies. I love them. If Six Undergrad was actually good, that's what Fallout is. So I haven't seen a Mission Impossible since the original. I don't know why, because this was really good. It was a lot of fun. It was great. It's on Amazon Prime. I've watched all of them. I love those movies.

Well, now I'm probably going to it because this is great. Mission Impossible, Fallout on Amazon Prime. Also on Amazon Prime, I watched The Report with Adam Driver. Any good? It's worth watching. It's not great, but it is a solid, solid B. If you have any interest, if you like political dramas, he was good. Annette Benning played Diane Feinstein. She was awesome.

So I would recommend that. I already talked about Parasite. Very, very good. Worth paying $15 for if you are interested. Curb, oh my God. Yeah, Curb is back. The funny thing is the first time that show went through, I missed it because I wasn't an HBO household and I caught up with it on like DVDs before streaming was a thing.

and now it's still on. When he dunked his nose in the coffee, I almost died. And then lastly, the Aaron Hernandez documentary. I don't know that I would recommend it. If you're interested in it, it was very well done. And I don't want to say that he was misportrayed, because don't misunderstand. I'm not saying he was a good guy because he obviously was a psychopath. But he was not exactly who I thought he was.

Doesn't it feel like these stories these days? There was like three Aaron Hernandez podcast and then documentary. And like there was two Firefest documentaries. Don't you think everything these days, that's kind of a big story? is just going to be just driven into the ground in terms of content with this stuff. Did you watch it? I didn't watch it.

I tried to listen to one of the podcasts and I kind of lost interest. I feel like I've heard too much about it. Yeah, okay. I mean, fair enough. It's far from must see, but it was well done. I heard it was good, yes. Okay.

Send us your emails, Animal Spiritspot at gmail.com. Thanks for our producer, Masu Passi, and we'll talk to you next week.